#280: It’s IPAB Week

#280: It’s IPAB Week
July 11, 2011

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

This week on Capitol Hill will bring renewed attention to the issue of the Independent Payment Advisory Board and its controversial role within the president’s plan to cut deficits and save costs. Two hearings featuring HHS Secretary Kathleen Sebelius will take place in the House Budget Committee and Energy and Commerce health subcommittee (the latter featuring hot-off-the-presses testimony from Heartland Institute Senior Fellow Avik Roy) and will highlight what’s becoming a wedge issue between the White House and moderate Democrats. As Politico’s Jennifer Haberkorn reports, the politics of this are dicey for several Democrats, many of whom were never sold on IPAB to begin with, and are uncomfortable defending it to their constituents:

[Democratic] New Jersey Rep. Frank Pallone, of the Energy and Commerce health subcommittee, has zero interest in defending the board.

“I’ve never supported it, and I would certainly be in favor of abolishing it,” he told POLITICO. “I’m opposed to independent commissions or outside groups playing a role other than on a recommendatory basis.”

Their disagreements indicate how hard it will be for the reform law’s supporters to show a united front when Republicans attack the board. In recent weeks, several health reform supporters – such as the American Medical Association, the National Committee to Preserve Social Security and Medicare, and Democratic Rep. Allyson Schwartz of Pennsylvania – have voiced support for a Republican plan to repeal the measure.

In fact, Schwartz will be one of the GOP’s star witnesses at the Energy and Commerce Committee hearing. She says IPAB puts Congress’s responsibility in the hands of an outside panel and could lead to arbitrary cuts to doctors, hospitals and other providers.

“It’s far better to achieve savings through reducing errors, duplication and waste and improving outcomes,” she said in a brief interview with POLITICO. “Simply cutting reimbursements is not the best way to go.”

It’s easy to forget that Democratic members in the House never wanted IPAB in the bill to begin with – it was absent from the House version of the legislation – and when it was added to the Senate’s version, a bipartisan group of more than 100 House members wrote to then-Speaker Pelosi demanding it be removed.

Nobody likes to explain to their constituents that the drugs and treatments they want to use are just too expensive under a new system. Considering that IPAB’s only real tool is underpaying in the marketplace, the ramifications of their decisions are likely to be political nightmares for elected representatives – a fact that supporters of bureaucratic rationing think of as a feature, not a bug – who are going to be the only ones running for re-election after Obama’s board goes into effect.

How Democrats respond to the IPAB issue will do much to determine whether the choice between two paths – single-payer rationing or consumer empowerment and premium support – becomes defined in the mindset of voters. Ultimately, that’s the real choice we face as a nation. The trouble is in helping voters understand the status quo can’t stay that way – a message no politician wants to deliver. So much of politics is dividing up the pie for voters, ignoring the ramifications for future generations. No one wants to be the guy to say there is no pie.

-- Benjamin Domenech


IN THIS ISSUE:


THE BLUEGRASS STATE’S BATTLE WITH MEDICAID COSTS

I’d encourage you to read Professor John Garen’s new report on the growth of Medicaid costs in Kentucky. In an interview this week he spoke regarding the burden Kentucky faces in terms of the expanding population of Medicaid recipients:

Well, we’re actually above the US average. We’re about 21 percent as the latest, I guess reliable figures that I have are actually based on 2009 and then it was about 21 percent. It’s probably around that, perhaps slightly higher now. One in five. I mean, that’s a huge number in my mind anyway. And I think nationally the numbers are around 16 or 17 percent. We are, I guess, Federal and state spending combined we’re about $5.5 billion, Federal and state combined spending. And if you just sort of move those making some simple projections, mostly just looking at what’s projected for medical cost increases. And then some slight increase in enrollments which I don’t know if they’ll happen or not, but you know, these are not crazy projections by any means. I think they’re pretty cautious. You know, we would go up to over eight billion under one of the projections and nine billion with another. From five and a half to eight or nine billion by the end of this decade.

That’s an enormous increase, of course, and signifies how great a threat Medicaid poses to the sustainability of state budgets. It’s also one reason why Kentucky is shifting its model on Medicaid in the direction of managed care, like so many other states.

SOURCE: Bluegrass Policy Blog


CANNON REACTS TO OREGON MEDICAID STUDY

It was inevitable that Medicaid’s defenders eventually would try to push back against the overwhelming evidence of the program’s failures. In this case, it was in the form of a survey from Oregon’s lottery to add an additional 10,000 people to Medicaid rolls – a survey that happens to be funded by President Barack Obama’s own HHS and CMS, but never mind that. Medicaid defenders, desperate for any positive signs, have latched on to the survey’s modest outcomes as a shield – but should they be so quick to do so? Cato’s Mike Cannon reacted to the Oregon Medicaid study in a post at National Review Online:

Supporters of President Obama’s health-care law may tout these benefits, but the OHIE does not provide the vindication they seek. First, despite being eligible for Medicaid, 13 percent of the control group had private health insurance – suggesting that on some dimension, Medicaid’s eligibility rules are already too broad.

Second, the OHIE extended coverage to the most vulnerable population of uninsured Americans, yet the improvements in health and financial security are so far apparently modest. At higher income levels, where individuals have greater baseline access to health insurance and medical care, the benefits of expanding coverage are likely to be smaller and the costs (to the extent that crowd-out is higher at higher income levels) will be greater.

Third, supporters must show not only that expanding coverage improves health but also that it does so at a lower cost to taxpayers than alternative policies. Health economists generally agree that discrete programs promoting highly effective treatments (for hypertension, diabetes, etc.) could produce health gains as large as expanding health insurance would, but at far less expense. Reducing taxes could plausibly reduce financial strain to a similar degree by expanding job creation.

Finally, the OHIE illuminates an unflattering feature of the push for Obamacare. For a century, the Left has advocated universal health insurance despite not knowing what benefits it might bring. In 2010, Congress and President Obama vastly expanded Medicaid without waiting for the results of the one study that might tell them what taxpayers would get in return for their half a trillion dollars. As the law’s supporters seek to cajole doctors into practicing evidence-based medicine, it is no small irony that they themselves dove head-first into evidence-free policymaking.

SOURCE: National Review


FDA’S DRUG APPROVAL RATE IMPROVES SLIGHTLY

Some small bits of good news on the FDA front: an increase in the approval of drugs, which means the agency will likely approve “more new types of drugs in 2011 than the previous few years” according to The Wall Street Journal:

In testimony before the House Energy and Commerce’s health subcommittee, Janet Woodcock, the head of the FDA’s drug division, responded to some lawmakers’ concerns that a tougher safety stance taken by the agency was slowing down the pace of drug approvals and hurting the pharmaceutical and biotech industry.

FDA’s drug approval figures involve drugs or biologics – which are made from living cells – that are considered new types of products. They don’t include approvals granted for new formulations or new uses of existing drugs as well as vaccines.

Ms. Woodcock explained the agency meets more than 90% of deadlines that are part of the drug-review process. She also said so-called first cycle approvals are at a 20-year high and said more than two-thirds of new drugs are being approved within the six-to-10-month time frames given to new drug applications. In other cases companies are asked to submit more information, which prompts additional reviews, or drugs are rejected.

Some of the notable approvals to date include two new hepatitis C drugs from Merck & Co. and Vertex Pharmaceuticals Inc. as well as the melanoma treatment Yervoy from Bristol-Myers Squibb Co.

However, the new drug-approval list includes some products that were initially delayed such as the lupus drug Benlysta from Human Genome Sciences Inc. and GlaxoSmithKline PLC. Last week the FDA approved a new drug, Xarelto, to prevent blood clots that was co-developed by Johnson & Johnson and Bayer AG. That approval was delayed for about two years as the FDA sought more information from the companies.

SOURCE: The Wall Street Journal


MORE ON THE LIEBERMAN-COBURN MEDICARE PROPOSAL

While I linked an interview with Sen. Tom Coburn last week, I neglected to link the documentation about his new bipartisan Medicare proposal with Sen. Joe Lieberman. Here’s part of his interview summing up the law’s aims:

The underlying problem with Medicare is the average person puts in about $130,000 during their working life and takes out $350,000. So, how do we change that? And there’s a lot of ways to change it, but one of the most important things is to change, what we know from a lot of studies that if you increase the pot (unintelligible) connection between purchase of health care and utilization of health care, that you can actually get the same quality outcome without the overutilization.

So, one of the things we change is we asked people to participate more fully in the Medicare Part B. And ask if you’re wealthy you pay all of your Part B premium. Right now the average Medicare recipient pays less than 25 percent of it. And when it was started they were supposed to pay 50 percent of it. So, we’re going back to the original Medicare which says we’re going to move you from 25 to 35 over 10 years where you’re paying actually a third of the out-patient insurance program under Medicare. And we hit the very rich in this country where they pay all of their Part B. We also asked the very rich to pay all of their Part B premium.

So, that they still get a benefit, and they still are going to take more money out than they put in, but at a much slower rate. So, what this does is it buys us 10 years of life in Medicare, number one. No. It buys us about 20 years of life in Medicare, but it saves us $10 trillion off the unfunded liabilities. And we do several things, you know, we slowly increase the age of Medicare. That’s number one. Number two, we limit Medicare coverage so that you can’t get anything that gives you first dollar coverage. We combine the deductibles into a single deductible, but we also put, you can know what your maximum you’re ever going to spend as a Medicare patient. You’re not, the most anybody on the lower tier is ever going to spend is $7,500 a year. The government is going to pick up the rest of that.

So now you have a max exposure. So that helps the low income more, but also helps us out. And the very rich have a $22,500 exposure. So, that’s how we get there and what it does is it massively grows over time. The first year, if this were implemented, would save $7 billion. The second year $22 billion. By the time you get to the tenth year, you’re saving $115 billion a year, and it continues to grow.

Read the full interview here.

SOURCE: Senator Tom Coburn


HOSPITALS RESPOND TO MEDICARE PAYMENT SHORTFALLS BY BOTH SHIFTING COSTS AND CUTTING THEM

Here’s an interesting study from UC-Berkeley’s James Robinson in Health Affairs on how hospitals respond to Medicare payment shortfalls:

The coverage expansions planned under the Affordable Care Act are to be financed in part by slowing Medicare payment updates to hospitals, thereby reigniting the debate over whether low prices paid by public payers cause hospitals to increase prices to private insurers – a practice known as cost shifting. Recently, the Medicare Payment Advisory Commission (MedPAC) proposed an alternative explanation of hospital pricing and profitability that could be used to support policies that pressure hospitals to reduce overall costs rather than to only raise prices. This study evaluated the cost-shift and MedPAC perspectives using 2008 data on hospital margins for 30,514 Medicare and privately insured patients undergoing any of seven major procedures in markets where robust hospital competition exists and in markets where hospital care is concentrated in the hands of a few providers. The study presents empirical evidence that, faced with shortfalls between Medicare payments and projected costs, hospitals in concentrated markets focus on raising prices to private insurers, while hospitals in competitive markets focus on cutting costs. Policy makers need to examine whether efforts to promote clinical coordination through provider integration may interfere with efforts to restrain overall health care cost growth by restraining Medicare payment rates

SOURCE: Health Affairs

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)